Foreign Exchange Rate risks in modern conditions of International trad

Proper pricing of currency risk in extreme unbalance in the risk situation takes an important economic value. Elements of the market at that time could undermine long-term efforts even large companies and, therefore predicting a possible currency losses is of great importance in intra-corporate financial planning, improving efficiency of core activities of the Bank or Corporation. Risk assessment always includes the magnitude of the risk period, the value at risk, as well as the risk of losses for obligations that may arise in the future (if, for example, will be contracted, on which negotiations have begun.
So, identifying currency risks and developing measures for their prevention, it is necessary to analyze the possible consequences of each type of currency exposure. In particular, the ...

FOREIGN EXCHANGE RATE RISKS IN MODERN CONDITIONS OF INTERNATIONAL TRADE
 
THE CONTENTS
Chapter I. Concept and types of currency risk
1.1. Place and types of currency risks in the system of commercial risks.
1.2. Virtual currency transactions and their development.
Chapter II. Current volumes and problems of international currency trade
2.1. Expert Forecasts: Expected Bond Yield Spreads and Macroeconomic Fundamentals.
2.2. Practical aspects of using the exchange reservations for foreign economic contracts of companies
Chapter3: Practical implication of hedging currency risk in foreign trade with Russia
3.1. Hedging as the instrument of regulation of currency risks.
3.2. Practical examples of the use of hedging opportunities.
Conclusions.
Index.

Chapter I. Concept and types of currency risk
1.1. Place and types of currency risks in the system of commercial risks.
Currency risk (the risk of exchange rate losses) associated with the internationalization of the market, the creation of transnational (joint) enterprises, banks and diversification of their activities. These processes are accompanied by the use in the calculations under contracts of currencies of different countries.
Currency risk - the risk of losses connected with fluctuations of foreign currencies in foreign economic transactions.
The value of any commodity is determined with the help of money - the universal equivalent for exchange of goods. Therefore, the cost of money has a direct impact on all markets. For example, increasing the value of the national currency val ue of exported goods expressed in foreign currency, increases, there occur fluctuations in the exch

Centrally issued VCs rely on the backing of the private issuer’s credibility while the value of privately issued currencies (see Box 1 and the next section) have historically been supported by the private issuer’s credibility and commodity reserves. In contrast, the value of cryptocurrencies does not have any backing from any source. They derive value solely from the expectation that others would also value and use them [17]. VCs can be obtained in a variety of ways. Convertible VCs can typically be purchased or exchanged with fiat currency or other VCs, through a VC exchange, through a trade platform, or directly with another VC holder. They can also be obtained in payment for goods or services. As noted above, decentralized VCs can be obtained by participating in the transaction validation process (for example, “mining”). VCs are typically stored in a “VC wallet,” either directly through a VC wallet software application or through an intermediary—a VC wallet service rovider [22].Ancillary service providers have entered the market. Payment facilitators operate as intermediaries between consumers and merchants/retailers, converting VC payments into fiat currency and bearing the exchange rate risk of the transaction. In the case of cryptocurrencies, some service providers offer additional anonymizing services that further obfuscate the traceability of transactions.Several questions arise when considering the role of VCs as money. Do they satisfy the legal definition of money and fulfill all the economic roles of money (store of value, medium of exchange, and unit of account)? How do they compare to other privately-issued monies that existed historically? If they become more widely used, could (or should) these privately-issued currencies substitute for national currencies?Theory and history offer some guide-posts for considering these questions (Box 1): - Theory. High inflation in the 1970s after the end of the Bretton Woods System renewed skepticism in some quarters over granting central banks monopoly power to issue nonconvertible fiat currency.10 Friedman and Schwartz (1986) and Fischer (1986) reject Hayek’s proposal to denationalize money (1976). Other researchers, however, continue to contemplate laissez-faire monetary regimes, and there has also been extensive theoretical work on the feasibility and optimality of privately issued money under monopoly or competition.- History. VCs are not the first example of currencies privately issued in a decentralized manner. While VCs are of course very different from national currencies, monetary systems and the legal concept of money have evolved substantially over time and will continue to change in the future. VCs should thus not be judged solely based on their current characteristics or on how they compare to current monetary regimes. A detailed comparison of the characteristics of VCs with existing and historical currencies sheds further light on these issues (Table 1). For the sake of specificity, Bitcoin is used as a representative example of a VC and compared to a home currency, a foreign currency, and a commodity asset based on current arrangements. Moreover, for a historical perspective, the table also includes key features of a commodity (gold bullion), a commodity currency (gold/silver coins), and a fiat currency convertible into gold and other commodities (the gold standard). The experiences during the U.S. Greenback era are also included, when the government-issued nonconvertible fiat currency “Greenbacks” and private banks were allowed to issue notes as currency. The monetary policy discussion in the policy challenges section assesses whether VCs could provide desirable monetary systems or not [19].Box 1. Public and Private Provision of Money: History and Theory Both history and economic theory broadly seem to support a monetary regime with public provision of currency over a competitive private system. The historical track record of containing inflation is mixed across both private and public systems. However, public systems appear to function better when there is a systemic liquidity shortage at the time of a financial crisis and the need arises for a lender-of-last-resort (LOLR). Resilience against inflation There are examples where currency was provided by multiple private banks without high inflation. In fact, many central banks in major advanced economies were first established as private banks, and their currencies did not have legal tender or monopoly status (Box Table). Also, notes issued by (multiple) national banks during the U.S. Greenback era did not have legal tender status but were traded at par with government issued notes (Calomiris, 1988). Box Table. The Origins of Central Bank PowersCountryDate foundedMonopoly over note issueNotes made legal tender State ownership France1800184818781945 Germany1875187519091948 Japan188218841885NAItaly189318931893NAUnited Kingdom (England)1694184418331946 United States191319131933NA Canada1934193519351938 Source: Redish (1993). Box 1. Public and Private Provision of Money: History and Theory Both history and economic theory broadly seem to support a monetary regime with public provision of currency over a competitive private system. The historical track record of containing inflation is mixed across both private and public systems. However, public systems appear to function better when there is a systemic liquidity shortage at the time of a financial crisis and the need arises for a lender-of-last-resort (LOLR). Resilience against inflation There are examples where currency was provided by multiple private banks without high inflation. In fact, many central banks in major advanced economies were first established as private banks, and their currencies did not have legal tender or monopoly status (Box Table). Also, notes issued by (multiple) national banks during the U.S. Greenback era did not have legal tender status but were traded at par with government issued notes (Calomiris, 1988). Box Table. The Origins of Central Bank PowersCountryDate foundedMonopoly over note issueNotes made legal tender State ownership France1800184818781945 Germany1875187519091948 Japan188218841885NAItaly189318931893NAUnited Kingdom (England)1694184418331946 United States191319131933NA Canada1934193519351938 Source: Redish (1993). But systems were needed to curb the tendency to print too much money. During the U.S. Greenback era, when convertibility was temporarily suspended to finance the Civil War, note-issuing private banks were subject to various regulations. Their notes were printed by the government and backed 111 percent by government bonds held on deposit at the Treasury (reserve requirement), making them indirect obligations of the government. The aggregate amount of nationally chartered banks’ notes was capped though the limit was later abolished. Moreover, their value was supported by the expectation to resume convertibility when the war was over (Calomiris, 1988). Without these systems, privately-provided nonconvertible fiat money often ended up being supplied in excess. Redish (1993) shows an example of nonconvertible notes with legal tender status issued by a French private bank in the late 18th century. Privately provided notes in late-19th century Japan led to inflation when their supply ballooned after banks suspended convertibility to gold [20].The inflation performance of public moneys has been mixed. Before the collapse of the Bretton Woods System, international monetary regimes were largely anchored by gold and/or pegs to the pound Sterling and U.S. dollar standard (Bordo, 1981, and Redish, 1993) that were successful in anchoring inflation. Excess inflation happened even under commodity currency regimes (coins) for seignorage revenue. Medieval European monarchs—who had a monopoly right to mint coins or charge a fee for running a mint—often debased the currency by raising the unit of account value of a coin at the mint and reducing the precious metal content per coin. In a contemporary context, macro policy mismanagement has often led to high inflation and hyperinflation, as observed in many emerging and developing economies. Among major advanced economies, high inflation occurred in the 1970s following the end of the Bretton Woods System [20].These experiences underpinned substantial discussions on tying central banks’ hands again by returning to a rules-based framework including the gold standard (Friedman and Schwartz, 1986). Lender-of-last-resort Theory suggests that the private provision of money is not optimal when an economy may face system-wide liquidity shortages. - The efficiency of competitive market equilibrium has been a key rationale cited by supporters of private provision of money (White, 1984, and Selgin, 1988). However, competitive equilibrium may not be optimal when the market is incomplete, or there is asymmetric information that could cause moral hazard (Mas-Colell, Winston, and Green, 1995). Such imperfections are typical in financial markets. Markets are also incomplete in the sense that not every risk is insurable among individuals, and everyone in the system could be hit by a large, negative, systemic shock. - Many researchers have thus argued that public provision of money could improve economic welfare. Weiss (1980) shows the welfare-improving role of central bank money and active monetary policy as these facilitate inter-temporal smoothing in an overlapping generations framework [18]. Diamond and Dybvig (1983) and Bryant (1980) show the effectiveness of public liquidity and deposit insurance in managing bank runs. Private provision of liquidity becomes insufficient and leads to a crisis without public outside money if a systemic shock hits the system, and contagion risks are imminent (Allen and Gale, 2000, Freixas, Parigi, Rochet, 2000, Holmstrom and Tirole, 1998, Tirole, 2008).History also seems to suggest that central banks in major economies often emerged in response to the need for a creditworthy institution to be the LOLR and manage bank runs (Goodhart, 1988, Redish, 1993, Gorton and Huang, 2006). In early history, large private banks acted as LOLR, but the need to handle bank runs more systematically eventually made them central banks or led to the establishment of new central banks. In the U.S., J.P Morgan pledged large sums of his own money and convinced other New York bankers to do the same to shore up the banking system in the 1907 financial crisis. The experience eventually led to the establishment of the Federal Reserve Board in 1913. As of late 18th century, the Bank of England (BOE) was a private bank, serving as the government’s banker. The BOE notes gained legal tender status and monopoly issuance power, as the bank had strong credibility to be able to provide liquidity for other banks in distress. Similar development is also observed with other major central banks. The global financial crisis provided a further reminder of the need for a credible LOLR [22].Chapter II. Current volumes and problems of international currency trade2.1. Expert Forecasts: Expected Bond Yield Spreads and Macroeconomic Fundamentals.In the global economy in 2015 was observed the improvement of the economic situation in some countries, while others, especially emerging market and developing countries, was embarrassed because of falling prices for commodities and tighter financial conditions.In 2015, the IMF also saw a number of major changes: the US Congress passed a quota reform of 2010, and the Renminbi, China's currency, was added to the official basket of currencies the IMF.As for personnel, the Foundation welcomed a new chief economist of the Maury Obstfeld, who previously headed the Department of Economics at the University of California at Berkeley. In September he joined the IMF from the Council of economic advisers under the President of the United States to replace Olivier Blanchard to the position of economic counselor of the IMF and Director of the Research Department of the IMF.The US economy continued active growth and the process of creating jobs, whereas in Europe overall, there has been increasing economic activity, and the situation in Japan remains uncertain. But with some exceptions (e.g. India) in emerging market and developing countries continued slowdown in the decline in commodity prices and tightening financial conditions, and synchronized and steady growth of the world economy remained elusive.In some countries, these very General trends superimposed political or geopolitical tensions, which reinforces the purely economic problems. The consequences of the manifestations of this tension in 2016 will be one of the main factors determining regional and global macroeconomic outcomes. However, I would like to note with satisfaction that at the end of 2015, came good news for the international monetary system: the US Congress finally approved the IMF quota reform, originally adopted in 2010. In several ways this change will strengthen the capacity of the IMF to respond to future financial stability, whatever they were.China will remain among the first in the list of such issues. Growth in China is slowing, as the economy transitions away from investment and productive activities to consumption and services. But the global spillover effects from the slowdown in China acting through the reduction of its import and a decrease in demand for commodities, were much more significant than we expected. Major challenges remain for reorientation related to the weakness of balance sheets of state enterprises, financial markets, and also to the overall flexibility and efficiency of resource allocation. Growth below the official targets of the authorities, once again, frighten the world's financial markets, however, the old ways of performance gain targets can only prolong the existence of economic imbalances, with the subsequent problems.What else should pay attention? The crisis of refugees fleeing Iraq and Syria, creates a difficult task for the potential of the EU countries in terms of admission of migrants for labour markets, but to an even greater extent for political systems. The project is a joint perimeter security of the EU and the associated controversy regarding the free movement of people within Europe deserve attention. But we must not forget that countries such as Lebanon, Jordan and Turkey are at the forefront of the refugee crisis. In addition to the problems of refugees, Europe faces other political and economic constraints — from the Iberian Peninsula to Greece and Ukraine.Climate change and the struggle for the control of emissions of C02 represent a gradually unfolding crisis, which is dangerous to ignore. The agreement in Paris at the 21st Conference of parties to the Convention was a triumph for international cooperation. In 2016, we will see how different countries react, and get a first idea of whether this helps agreement of effective international cooperation.And finally, this is international trade, which in recent years experienced difficulties as the growth of world trade relative to GDP growth slowed down. Will there be agreement on the TRANS-Pacific partnership (TPP) adopted by the U.S. Congress? Perhaps we'll find out about it in the spring. If it is accepted, will this be a prelude to an agreement between the US and the EU? The Doha round was in fact collapsed last month in Nairobi. If a comprehensive multilateral trade agreements are no longer the subject of negotiations, whether trade liberalization can continue effectively on a more limited scale? The answers to these questions are important for different member States of the Fund.2016 will be full of challenges, but the emerging markets will indeed be the center of attention. Capital inflows decreased, the part of the reserves spent, sovereign spreads increased, the national currency has weakened, and in some countries, dramatically decreased the growth rate. The declining rates have proved extremely useful tool to mitigate the various economic shocks. However, a further sharp drop in the price of commodities, including energy, will cause even greater problems for exporters, including a more rapid decline in currency exchange rates, which may cause as yet hidden vulnerabilities in the balance sheets or to spur inflation.The mood in the financial markets at the end of 2015 are gloomy, the markets prone to high volatility, despite continued easing by the European Central Bank and the Bank of Japan. Of course, the Federal reserve began in December, as she believes, to a gradual cycle of interest rate hikes. It will be extremely important as the fed will spend the next interest rate hike in 2016 and how it will interact with the market (at the end of 2015 this objective, apparently, was to run in the right way). But there is no doubt that conditions in global financial markets tightened, and emerging market and developing countries are particularly sensitive to the effects of these measures, given their other current difficulties.Emerging market and developing countries should be more active and targeted research. In 1980-ies the share of this group of countries accounted for about 36 percent of global GDP (measured at purchasing power parity, or PPP) and approximately 43 per cent increase in world GDP (PPP weights). In 2010-2015, these figures, respectively, was 56 percent and 79 percent. Therefore, the approach to the study of the world economy mainly taking into account the prospects of the advanced economies becomes even more obsolete. This program of research on emerging market economies and developing countries include the traditional issues of balance of payments — capital flows and their management, foreign exchange intervention, vulnerabilities in the balance sheets, the determinants of current account balances, especially trade and trade volumes.But there are a lot of additional questions. What policies and policy frameworks contribute to increasing potential production and rate of growth? As noted in past issues of "prospects of development of world economy" (of prme), the growth of potential GDP appears to have slowed in all countries of the world, but the reasons for this are not well understood. In this regard, it is necessary to consider the structural reforms in the advanced economies.Trends in inequality also require attention. Despite the significant global convergence of national incomes per capita, this should not necessarily more equitable distribution of income within countries. This inequality affects the overall economic performance (for example, through the results in the form of health status) and on the political acceptability of policy measures conducive to the development of the market. How can we ensure that growth does have a much wider, and how this, in turn, can contribute to higher growth.In addition to these longer-term issues of growth and distribution, there are many issues of economic stability that require attention. For example, for different countries overall priority topical area of research is the integration of the financial sector in the basis of macroeconomic policy.The international monetary system was much easier at the initial stage of the Bretton woods system, when the critical issues were limited to exchange rate adjustments and the balance of payments. In today's world is closely related, but still separate, national capital markets, the problems became more complex. For example, now occupy a leading place in the questions about the relationship between the exchange rate regime and financial stability, which will remain the subject of intensive research in the IMF.The global financial crisis fallout significantly unsettled European sovereign bond markets.